THE relative strength of most farm commodity prices during the global financial crisis is adding credibility to warnings the world is facing another GFC – a global food crisis.
That’s the view of Neil Dobbin, Rabobank’s head of rural banking, who says he has spent decades at conferences and seminars listening to speakers delivering dire predictions of a world shortage of food (and farmers basking in an era of high prices).
Theory changed to reality several years ago when the sudden growth of the ethanol industry, particularly in the US, put global grain supply and demand out of kilter and starkly exposed the genuine threat to food supplies, he said.
China’s emerging middle class had added another dimension to the food supply squeeze and rammed home the message around the globe that food security was looming as a major long-term problem with rising incomes in emerging megaeconomies such as China and India, increasing urbanisation and a world population heading for nine billion by 2050. China responded by seeking to stockpile two years of food, Mr Dobbin said.
And now, despite the GFC, the returns for most rural products had remained strong, which pointed to a potential price escalation when the recession ended.
Mr Dobbin said some of the exceptions at the moment were dairy prices, which he expected to remain “soft” for at least 12 months, and wine, which was grappling with a serious supply glut.
Dairy products such as chocolate, cheeses and desserts fell into the category of discretionary spending when consumers were under the financial pump.
Mr Dobbin said the strength of commodity prices had sheltered many Australian farmers from the GFC, particularly those who hadn’t over-geared their businesses, had achieved economies of scale and were in areas that had escaped the worst of the drought.
As a result, Rabobank’s loan book, which covers about 20 percent of farmer debt in Australia, was healthy and the bank was looking to expand beyond its current 51 branches and 280 frontline staff to add more good farmers to its client base.
Peter Knoblanche, Rabobank’s general manager for rural Australia, said the signs were positive for agriculture post-recession, but warned that upward price pressure was also likely on key inputs such as fertilisers as demand picked up again.
The GFC had allowed fertiliser production to catch up with demand which had taken the sting out of prices – for the present.
Both men expected property prices in more favoured areas of Australia to hold up “pretty well”, with some expansionminded farmers keen to increase their holdings but not at inflated prices.
Mr Dobbin said Australia’s political decision-makers needed to understand the value of investing more research dollars into agriculture to ensure the sector could take full advantage of the opportunities that would flow from the global food shortage, as well as help farmers cope with possible climate change and increased periods of drought.
Mr Knoblanche said agriculture would also benefit from more spending on key infrastructure such as ports, rail and broadband communications.
Mr Dobbin said interest rates were probably near the bottom of the present cycle while he hoped exchange rates wouldn’t move above present levels.
He saw little chance of the Australian dollar climbing back to around US95 cents.
Rabobank senior analyst for food and agribusiness, Wayne Gordon, said there were signs that industrial activity in China was starting to crank up again in response to recent consumer stimulus packages, which was good news for Australian farmers.
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